Next cuts guideline as inflation weighs on UK consumers

Next Plc issued its second profit warning of the year on rising inflation and a devaluation of the pound which has eroded consumer confidence.

The British clothing and homewares chain announced on Thursday that profit for the year will be 840 million pounds ($905 million), compared to the previous forecast of 860 million pounds. Full price sales are expected to fall 1.5 percent in the second half instead of rising 1 percent.

Next said sales slowed “significantly” in August and pressures from the highest inflation in four decades will mount in the coming months into next year, compounded by the pound’s recent fall in value.

The next stock fell 6 percent in early trading in London.

The changing outlook shows how hard it is for retailers to predict performance as the cost of living crisis impacts spending on everything from groceries to household bills. The retailer, seen as a frontrunner for the health of Britain’s high streets, lowered guidance earlier this year before raising its outlook last month.

“With so many variables at play, it is unusually difficult to predict near-term revenue trends,” Chief Executive Officer Simon Wolfson wrote in the earnings update. “All the more so as the latest government stimulus measures are not yet taking full effect.”

All retailers are struggling against weak consumer demand in the UK. Prices in UK stores hit a new record high this month, with brands increasingly having to pass costs on to consumers. Online fast fashion retailer Boohoo Group Plc cut its earnings forecast on Wednesday as rising bills discourage consumers from spending on clothes and shoes.

Hennes & Mauritz AB said on Thursday that operating profit for the three months to August fell below analysts’ estimates after the retailer’s withdrawal from Russia and higher costs led to a slump in profits.

The predicament for British retailers is made worse by the fall in sterling, which is heading for its worst month since the UK voted to leave the European Union, amid concerns that Prime Minister Liz Truss’ new fiscal stimulus measures will lower inflation and could fuel the country’s mounting debt.

“Going forward, it looks like sterling’s depreciation will prolong inflation, even if ex-factory prices soften,” Wolfson said. “It looks like we could see two cost-of-living crises: this year a supply-driven tightening, next year a currency-driven price hike as devaluation takes effect.”

Next has around 500 stores in the UK and Ireland and a large national and international online division selling its own fashion range as well as third party brands. It also uses its infrastructure network to help competing brands sell their wares online. Next cuts guideline as inflation weighs on UK consumers

Fry Electronics Team

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